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THE GENERAL DEPARTMENT OF CUSTOMS

CIRCULAR No.111-GSQL/TT OF MAY 28, 1997 GUIDING THE IMPLEMENTATION OF DECREE No.12-CP OF FEBRUARY 18, 1997 DETAILING THE IMPLEMENTATION OF THE LAW ON FOREIGN INVESTMENT IN VIETNAM

- Pursuant to the Ordinance on Customs of February 20, 1990;

- In implementation of Article 104 of Decree No.12-CP of February 18, 1997 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;

- The General Department of Customs hereby provides the following guidances on the implementation of Articles 40, 47, 48, 63, 76, 98 and 103 of aforesaid Decree No.12-CP:

I. GENERAL PROVISIONS

1. All goods imported and exported by joint venture enterprises, enterprises with 100 per cent foreign invested capital and business cooperation contracts (hereafter commonly referred to as foreign invested enterprises) shall be subject to the inspection and supervision of the Customs office in accordance with the provisions of Vietnamese law.

2. Under Clause 4, Article 2 of Decree No.89-CP of December 15, 1995 and Article 47 and Article 76 of Decree No.12-CP: All imports and exports of foreign invested enterprises (including equipment, machinery, materials and means of transport imported to create fixed assets; raw materials and materials imported for production and all export goods) must be approved in writing by the Ministry of Trade. Basing itself on the written approval of the Ministry of Trade, the Customs office shall fill in the import or export procedures according to the quantity and value of goods defined in such written approval.

3. The customs procedures for the import and export goods of foreign invested enterprises shall comply with customs provisions applicable to common imports and imports, except the following cases:

3.1. For imports and exports of enterprises in export processing zones or concentrated industrial zones, the customs procedures shall be filled in at such export processing zones or concentrated industrial zones (separate specific regulations shall apply).

3.2. Import tax shall not be levied on those goods which are eligible for import tax exemption under Clause 1, Article 63 of Decree No.12-CP when the import procedures are filled in (according to the guidance in Document No.663-TCHQ-KTTT of February 28, 1997 of the General Department of Customs).

4. When their goods arrive at border gates and the foreign invested enterprises request to fill in the import procedures, the Customs office shall have to give priority to quickly completing the customs clearance procedures in accordance with the provisions of customs legislation so as to promptly serve production and construction activities as planned. If any problem arises beyond their competence, the local Customs Departments shall have to immediately report it to the General Department of Customs for direction and must not keep the goods and materials for a long time at the port.

5. All imports and exports of foreign invested enterprises shall be subject to import and export duties and other related taxes as prescribed by law, except for those eligible for tax exemption or reimbursement under Article 63 of Decree No. 12-CP.

II. SPECIFIC GUIDANCE

1. Article 40 of Decree No.12-CP provides for the quality and quality inspection, prices of imported equipment, machinery, supplies and means of transport. The General Department of Customs provides the following guidance for the implementation of this Article:

1.1. Imported equipment, machinery and supplies stated in this Article include equipment, machinery and supplies (hereafter commonly referred to as goods) imported for creating fixed assets (including those imported for project expansion, technological replacement and renewal). Materials and raw materials imported for manufacturing products shall not be regulated by this Article.

1.2. The Customs office shall base itself on the regulations on the quality standards of equipment, machinery and supplies which are effective at the time the import declaration form is registered as stipulated in Clause 4 of Inter-ministerial Circular N0. 01/LB of October 31, 1995 of the Ministry of Trade, the Ministry of Finance, the State Committee for Cooperation and Investment and the General Department of Customs, and the provisions in the investment license (if any) to process the import procedures. If there is any difference between these two documents, the provisions in the investment license shall be complied with.

1.3. All equipment, machinery and supplies for creating fixed assets of investment projects must have quality inspection certificates. Specifically:

(i) If the investment license or the Ministry of Trade�s document approving the import plan requires pre-shipment inspection, the inspection certificate must be submitted together with the dossier registering for filling in the import procedures.

(ii) If the investment license or the Ministry of Trade�s document approving the import plan does not require pre-shipment inspection, the Customs office shall fill in the import procedures for a quick release of the goods while the inspection certificate may be submitted later upon the availability of the inspection results no later than 30 days from the date the Customs office releases the goods. The goods owner shall be held responsible for the value and quality of the imported goods and the Customs office shall not wait for the inspection results before releasing the goods.

1.4. An acceptable inspection certificate is a valid inspection certificate granted by any of the inspection organizations specified in Clause 4, Article 40 of Decree No. 12-CP. In cases where the inspection is subject to aforesaid sub-clause 1.3 (ii), the inspection certificate must clearly state that it is pre-installation inspection.

1.5. The inspection agency shall take legal responsibility for the inspection results. In cases where there are reliable grounds for concluding that the inspection of the goods value and quality is not accurate, the Customs Department of the province or city where the import procedures are filled in shall make a written request to the investment license granting agency for a re-inspection. If the re-inspection result is exactly the same as the conclusion of the Customs office, apart from executing the decision of the investment license granting agency, the owner of the goods and the first inspection organization shall be handled for their violation as prescribed by law.

2. For Article 48 of Decree No.12-CP providing for subcontracted processing and bonded warehouses. The General Department of Customs gives the following guidances:

2.1. The customs procedures required for processed and reprocessed goods of foreign invested enterprises shall comply with the provisions in Clause 1 of this Article; in Inter-ministerial Circular No. 14/KHDT-TM of September 25, 1996 of the Ministry of Planning and Investment and the Ministry of Trade guiding the processing of export goods of foreign invested enterprises in accordance with the Law on Foreign Investment in Vietnam; in Decision No. 126/TCHQ-GSQL of April 8, 1995 and other guiding documents of the General Department of Customs.

2.2. Eligible foreign invested enterprises shall be granted permits to establish bonded warehouses at the enterprises according to the guidance in Part III below.

3. Article 63 of Decree No.12-CP provides for import tax exemption and reimbursement and assignment of import goods of foreign invested enterprises. The General Department of Customs gives the following guidances for implementation:

3.1. Under this Article and Inter-ministerial Circular No. 01/LB of October 31, 1995 of the Ministry of Trade, the Ministry of Finance, the State Committee for Cooperation and Investment and the General Department of Customs, when granting the import permits, the Ministry of Trade has clearly defined the list and values of imports eligible for import tax exemption and the list and values of imports subject to import tax and other related taxes. Basing itself on the Ministry of Trade�s import plan permits, the Customs office shall fill in the import procedures.

With regard to the lists of goods which are, as approved by the Ministry of Trade, exempt from import tax but subject to special consumption tax and other taxes (if any) the Customs office shall fill in the import procedures in accordance with current regulations.

3.2. For those goods eligible for import tax exemption under Clause 1 of aforesaid Article 63: If the quantity of the goods conforms with the permit issued by the Ministry of Trade but their declared value exceeds the approved one, the Customs office shall base itself on the value ascertained in the valid inspection certificate as guided in Point 1.3 above to settle as follows:

(i) If the inspection result ascertains that the declared value is appropriate the Customs office shall fill in the import procedures without requesting adjustment to the permit.

(ii) If the inspection result shows that the declared value is not correct, the Customs office shall handle the violation and request adjustment to the Ministry of Trade�s permit regarding the portion of goods exceeding the value exempt from import tax.

(iii) In cases where pre-shipment inspection is not required, if, at the time the import procedures are filled in without an inspection certificate, the declared value exceeds the value stated in the permit issued by the Ministry of Trade, the goods shall be released only upon the conclusion and the decision on the goods value as guided in aforesaid sub-clauses (i) and (ii). If the goods need to be released to serve the construction and production, the enterprise shall have to make a commitment to execute the Customs office�s decision regarding the value.

3.3. For the import goods subject to import tax and other related taxes, if the quantity of goods conforms with the permit but the value of such goods exceeds the permitted one, the Customs office shall handle it as an administrative violation but still fill in the import procedures, collect the full tax on the actually imported goods without requesting adjustment to the permit.

3.4. The tax exemption and reimbursement procedures shall comply with current regulations.

III. BONDED WAREHOUSES AT ENTERPRISES

1. Definition: A bonded warehouse at a foreign-invested enterprise (hereafter referred to as bonded warehouse) is a warehouse of the foreign invested enterprise to serve the production of goods for export, is subject to a special customs management regime under which materials and raw materials imported to serve the enterprise�s production are kept at a bonded warehouse for which import tax and other related taxes are not yet calculated and paid.

Imported materials and raw materials and products kept at a bonded warehouse of an enterprise include only materials and raw materials used for production activities and products of such enterprise.

2. Conditions for establishing a bonded warehouse:

a/ The enterprise has been established under the Law on Foreign Investment in Vietnam to produce goods principally for export (at least 30 per cent of its products)

b/ Not violating the provisions of law, having clear business, financial and credit relations.

c/ Using a proper system of records and vouchers to fully and closely monitor the import and export of goods, goods brought into and out of the bonded warehouse in accordance with current provisions of Vietnamese law.

d/ The enterprise must place the bonded warehouse at an area convenient for the management and supervision by the Customs office.

3. Procedures for applying for the establishment of a bonded warehouse:

3.1. An enterprise that wishes to establish a bonded warehouse shall have to submit to the provincial/municipal Customs office two sets of dossier including the following papers:

(i). An application for establishing a bonded warehouse (according to the form set by the General Department of Customs)

(ii) The investment license (a notarized copy)

(iii) The enterprise�s Statute (a notarized copy)

(iv) A map of the enterprise and a map of the bonded warehouse

(v) The rules on the operation of the bonded warehouse

3.2. Within 10 days after the receipt of the full and valid dossier, the concerned provincial/municipal Customs office shall have to conduct a survey and, if the aforesaid conditions are met, shall make a written proposal to the General Department of Customs (together with 01 set of dossier).

Within 20 days from the date of receipt of the dossier and the proposal of the provincial/municipal Customs office, the General Department of Customs shall grant a permit for the establishment of a bonded warehouse or issue a written reply to the enterprise.

The permit for the establishment of a bonded warehouse shall be valid for 01 year. Upon its expiry, if the enterprise still meets all the conditions and has an application for extension with a certification of the municipal/provincial Customs Department, the General Department of Customs shall consider and extend the permit on the yearly basis.

3.3. For establishing a bonded warehouse and extending its operating duration, the enterprise shall have to pay a fee according to the provisions in Inter-ministerial Circular No.80-TTLB of October 4, 1994 of the Ministry of Finance and the General Department of Customs.

4. Customs procedures for goods brought into and out of a bonded warehouse

The customs procedures for imported raw materials and materials to be put into a bonded warehouse and for products to be exported shall be the same as those for a normal batch of imports or exports. Only the calculation and payment of import tax on imported raw materials and materials shall be carried out as follows:

4.1. Depending on the percentage of products permitted for sale on domestic market as stated in the investment license or the Ministry of Trade�s written approval of the annual import plan of the enterprise as prescribed in Article 47 of Decree No.12-CP, the Customs office shall calculate and collect import tax on the portion of raw materials used for the production of products consumed in Vietnam as for normal imports (using declaration form HQ96-KD). In cases where the percentage defined in the investment license is different from that in the Ministry of Trade�s written approval of the annual import plan, the latter shall be complied with.

- For the imported raw materials and materials put into a bonded warehouse for the production of export goods, the Customs office shall not calculate import tax but clearly define their quantities in every declaration form (using declaration form HQ96-GC for the production of exports) and record them in a monitoring book (used for monitoring imported raw materials for the production of exports).

- For the goods which are put into a bonded warehouse and so damaged or have deteriorated in quality to an extent that they do not meet the production requirements, the Customs office shall fill in the procedures for re-exporting or destroying them. Such destruction shall comply with the regulations of the General Department of Customs and be supervised by the Customs office, tax office and environment agency.

4.2. Every six months, the enterprise shall make a sum up report on the declaration forms, total amount of raw materials and materials eligible for the tax reservation regime and total quantity of exported products and send it to the Customs office. After checking the accuracy of this report, comparing it with the dossier filed by the Customs office and on the basis of the provisions on the percentage of to-be-exported products as stated in the investment license or the Ministry of Trade�s written approval of the enterprise�s import and export plan, the Customs office shall settle as follows:

(i) If compliance is ensured, it shall liquidate the goods batches according to the prescribed percentage.

(ii) If the percentage of exported products is lower than the prescribed one and the enterprise fails to give any justified explanation but the investment license granting agency or the Ministry of Trade approves to adjust such percentage, the enterprise must immediately pay import tax on the finished product difference between the quantity of products that must be exported and the quantity of actually exported products, just like the case the enterprise imports finished products from abroad. The time for tax calculation shall be the time the Customs office decides to collect the tax.

(iii) At the end of the plan year (December 31, every year) the enterprise shall have to make a report to sum up the declaration forms, total quantity of imported raw materials and materials eligible for the tax reservation regime and total quantity of exported products and send it to the Customs office. After checking the accuracy of the report, comparing it with the dossier filed by the Customs office and on the basis of the percentage of products that must be exported as defined in the investment license or the Ministry of Trade�s written approval of the enterprise�s import and export plan, the Customs office shall settle as follows:

(iii).a/ If the percentage of exported products is lower than the prescribed one and the enterprise fails to give any justified explanation but the investment license granting agency or the Ministry of Trade approves to adjust such percentage, the enterprise must immediately pay import tax on the finished product difference between the quantity of products that must be exported and the quantity of actually exported products and the Customs office shall handle such violation. If only less than 50 per cent of products are exported, apart from handling the violation, the provincial/municipal Customs Department shall report it to the General Department of Customs on the decision to withdraw the permit for the establishment of the bonded warehouse.

The tax mentioned in this sub-clause (ii) and sub-clause (iii.a) above shall be the tax rate applicable to imported finished products according to the tax policy effective at the time the Customs office issues a decision to collect the tax.

(iii).b/ If the percentage of exported products is higher than the prescribed one, the enterprise shall be refunded the difference between the tax on the actually exported products the actually paid tax.

(iv) The enterprise having a bonded warehouse shall take responsibility before law for the accuracy and completeness of the sum-up reports stated in Pont 4.2.

4.3. Imported goods put into a bonded warehouse must not be sold into the Vietnamese market. In special cases where the enterprise is permitted to do so by the Ministry of Trade, it shall have to pay import tax and other related taxes thereon in accordance with current provisions of law.

5. Management by the Customs office over bonded warehouses:

In principle, a bonded warehouse at an enterprise is placed under regular inspection and supervision of the Customs office. However, depending on the concrete conditions, the Customs office may conduct direct supervision or define the power to inspect and supervise but not directly conduct regular supervision. The inspection and supervision by the Customs office is conducted mainly through the filling in of customs procedures for import and export goods of enterprises; the liquidation of each batch of goods; the checking of the reports of enterprises, and direct inspection without advance notice (including checking of books of records, vouchers, the filing system in the computer network, taking stock of goods left in bonded warehouse). The enterprise shall be responsible for organizing the management of bonded warehouse, create every favorable condition and closely coordinate with the Customs office in helping the latter to implement the aforesaid inspection and supervision regime.

IV. ORGANIZATION OF IMPLEMENTATION

This Circular replaces Circular No.10/TCHQ-PC of October 15, 1993 of the General Department of Customs guiding the implementation of Decree No.18-CP of April 16, 1993. This Circular takes effect from the date of its signing. The earlier provisions which are contrary to this Circular are now annulled.

In the course of implementation, any problem should be promptly reported to the General Department of Customs for guidance.

General Director of the General Department of Customs

PHAN VAN DINH